Roubini: Gold Standard Fans Are ‘Lunatics and Hacks’

Those making public calls for a return to the gold standard are a bunch of lunatics and hacks who are doing nothing but calling for a repeat of the Great Depression, says New York University Nouriel Roubini.

Loose monetary policies have done little to lower unemployment rates and have many saying the U.S. should return to the gold standard, which pegs the value of the dollar to gold.

Supporters say a gold standard, abandoned in the 20th Century, would force the government to live within its means and end inflationary pressures that come with expansive monetary policy.
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"That's total nonsense." Roubini tells Yahoo's The Daily Ticker, calling the gold bugs who support a return to the gold standard a "bunch of lunatics and hacks."

A gold standard prevents authorities from stimulating the economy when needed.

Nouriel Roubini
(Getty Images photo)

"One of the major causes of the Great Depression was the existence of the gold standard," Roubini says.

By limiting the amount of money authorities can put into circulation, authorities render themselves powerless to act as a lender of last resort when needed.

"They restrained the ability of Central Banks to provide lender-of-last-resort support to their banks, created tight money — it created bank runs, and lead eventually to the Great Depression," says Roubini, who accurately called the recent recession well before it happened.

Furthermore, talk that the U.S. dollar will cease to be the world's reserve currency needs a second look as well.

"People may complain as far as they want about the U.S. dollar, but the reality is that actually when there is risk aversion, when there is tail risk, when we have trouble like today, people dump the euro, people dump emerging markets and go to the safety of the U.S. dollar and U.S. Treasurys because it's the tallest small midget in the room."

Gold often rises when paper currencies weaken, which has been the case this year thanks to a weakening dollar.

Today, fears over whether the euro will survive are fueling fresh gold demand.

In Europe, gold demand was up 135 percent in the third quarter in 2011 compared with the same period a year ago, according to the World Gold Council, CNNMoney reports.

Worldwide demand for gold was up 29 percent in the third quarter.

"Fears generated by the deepening sovereign debt crisis in Europe were manifested in a strong desire to buy gold," the World Gold Council reports.

Those making public calls for a return to the gold standard are a bunch of lunatics and hacks who are doing nothing but calling for a repeat of the Great Depression, says New York University Nouriel Roubini.
Loose monetary policies have done little to lower unemployment...